In light of a global recession, the corporate losses are hardly a surprise. Still, it appears that none of the Japanese electronics manufacturers saw it coming before last Christmas. Indeed, none dared believe that things could turn so bad, so quickly.

As late as last November, all of the big electronics manufacturers here were predicting net profits. Over the last few weeks, however, each company, one by one, has issued revised forecasts of a net loss in the current fiscal year.

Only two electronics manufacturers, Mitsubishi Electric Corp. and Sanyo Electric Co., are expected to weather the current storm. Sanyo said it expects to post zero profit this fiscal year.

Hitachi (net loss of �700 billion) and Toshiba (�280 billion loss) will each record the biggest losses in their histories.

Shrinking global demand for automotive and consumer electronics are at the heart of the Japanese downfall. The trend strikes at the heart of many Japanese electronics manufacturers, whose core business is in development, production and supply of key components for consumer products. The recently strong yen has aggravated the problem for many companies that rely heavily on exports.

Weighing optionsAs with the global economy, there is little relief on the horizon for Japanese electronics companies. Going fabless, pursuing large-scale mergers and massive layoffs are three options. Still, each action goes against the core values held by many Japanese electronics manufacturers.

Jean-Laurent Poitou, managing director for electronics and high technology at Accenture, said the choice between domestic manufacturing versus outsourcing has always been a conundrum for many Japanese electronics manufacturers.

Companies like Apple, RIM and Nintendo, which don't manufacture their own hardware, can now command a much higher margin, while keeping their operation lean, said Poitou. "And yet that's a move that's counterintuitive to many Japanese companies in the electronics sector," he said. Whether or not it still makes economic sense, many Japanese manufacturers still believe in the virtue of manufacturing.

But the reality is that any component-level investment—whether for plasma, LCD or solar—tends to require huge outlays. Poitou suggested that Japanese manufacturers must now reconcile themselves to that reality. At the semiconductor level, industry consolidations such as Renesas Technology (the merger of semiconductor divisions at Hitachi and Mitsubishi) have already occurred, Poitou said.

Toshiba, which said recently it may spin off its system and discrete chip operations, is reportedly in discussions to combine its system chip business with NEC Electronics Corp.

Neither NEC nor Toshiba has publicly discussed the negotiations. But many in the semiconductor business view such a move as critical to their survival.

Cost-cutting measuresWhile less pessimistic about large-scale corporate mergers among Japanese electronics systems companies, Poitou predicted that subsystem-level collaboration among Japanese system vendors is likely to get more traction.

Calling it a "networked model," he said, "Japanese electronics manufacturers talk to each other a lot." Such collaboration tends to be focused on certain products or core technology, Poitou explained.

Meanwhile, the latest global recession may finally make the term "lifetime employment" obsolete in Japan.

Sony and Sanyo, for example, are taking the unprecedented measure (by Japanese standards) of cutting full-time employees.

Sony has announced a global layoff of 16,000 workers, which include full-time employees.

While going fabless or giving up production won't be an option for many Japanese electronics manufacturers, some are busy reducing their investment in facilities. Toshiba plans to cut its 2009 investment in facilities, especially for semiconductors, by 55 percent compared to 2007, down to �230 billion ($2.5 billion).

Finally, Panasonic said it will cut investment in its flat-panel manufacturing facility by �135 billion ($1.5 billion).